China’s Aviation Market Is Taking Hold

Image

The Asian Business Aviation Conference and Exhibition in Shanghai last month.CreditEric LeLeu for The New York Times

By Chris Horton

May 23, 2016

TAIPEI — In the mid-1980s, more than three decades after Mao Zedong’s communist revolution, David Dixon was one of the first capitalists allowed by a wary Beijing to fly over China in a business jet — with an escort.

“You had to have what was called a ‘navigator,”’ said Mr. Dixon, president of Jetcraft Asia in Hong Kong. “I don’t know who he worked for, and it was quite clear he didn’t know how to navigate anything, but he did know exactly where you were and if you were heading anywhere toward military installations.”

Three decades later, China has embraced business aviation and is home to Asia’s largest business-jet fleet. After an extended period of rapid growth, it is experiencing growing pains that should be temporary, provided it can further relax its heavy control of its skies and airports.

Data from the consultancy Asian Sky Group’s 2015 Asia Pacific Fleet Report shows that China, Hong Kong and Macau’s combined fleet saw a net addition of 26 jets last year, an increase of 6.2 percent, but just under half the net additions of 2014. A slowing of deliveries of new aircraft is partly due to the impact of President Xi Jinping’s austerity and anti-corruption campaigns.

Beginning in 2013, the campaigns reduced demand for new business jet orders, which once had a two-year backlog. Last year’s dropoff of new deliveries is “a worrying sign for 2016 and on,” the report notes, “as it would seem to signify that the OEM sales funnel for Greater China has little backlog.”

Despite the end of 20-percent annual growth, many in the industry are expecting strong, steady growth for years.

“I think we’re definitely seeing an uptick from a year ago,” said Jason Liao, chairman and C.E.O. of China Business Aviation Group. “I’m very positive. I think we’ll see an average of 10 percent, sustainable long-term growth.”

China’s shift from being a global investment destination to becoming a global investor is also changing the market.

“China’s commercial interests are spreading all over, to Africa, to South America, regions which are not necessarily their traditional markets,” Mr. Dixon said. “When they go looking for resources, they’re usually in remote areas, so access becomes crucial. How do you get from Beijing to Angola easily and when you want to? The answer is business aviation.”

For many Chinese businesses, that means long-range, wide-body aircraft. The top two models delivered to China and Hong Kong in 2015 were Bombardier’s Global 6000 and Gulfstream’s G650, designed for long-range use. Bombardier’s 2015 market forecast predicts that greater China will account for 875 deliveries valued at $33 billion in the coming decade, with medium and large aircraft accounting for 90 percent.

“Geographic positioning of the Asia Pacific region and distances between major cities necessitates the need for long-range aircraft,” said Khader Mattar, Bombardier’s vice president of sales for the Asia Pacific region and China. “We expect the Chinese market to be one of the four most active markets and to generate the most deliveries over the next 10 years.”

China’s business aviation market should benefit from support from Beijing, which has mentioned general aviation in the past two five-year plans.

“General aviation is becoming one of the main directions in China’s national policy,” said Fang Xinyu, vice president of Deer Jet, China’s largest charter provider, now in its 21st year of operation. “The government is encouraging more investment in this industry.”

Last year Deer Jet added two new fixed-base operators to its domestic network, which now totals eight. Its fleet size has dropped below 90 aircraft as it moves to replace older aircraft, and its turnover rose 10 percent, with its share of the Chinese charter market now at 70 percent, Mr. Fang said. The market is maturing but has far to go, he said. “We are still short of pilots, mechanics and even professional marketers.”

Denzil White, C.E.O. at Deer Jet subsidiary Hongkong Jet, said the regulatory environment for business aviation in China also has room for improvement. “In America, I can decide at two o’clock in the afternoon that I want to leave at five o’clock from Los Angeles and fly to New York, and it’s quite possible to do it,” he said. “Here, if you get all your ducks in a row it’s a minimum of two days.”

Other issues include restrictions on flight times, extremely limited flight paths due to military control of the skies and limited access to the high altitudes for which many jets are designed.

A two-decade shortage of pilots has been addressed by more training centers, Mr. Liao said, but now there is a shortfall of captains, a problem that will be resolved in the coming two to three years once today’s first officers have met their flying hours requirements.

A lack of sufficient slots and parking spaces at busier airports, especially Hong Kong International Airport (HKIA), where 132 business jets are served by a lone FBO , is also a major issue. “Hong Kong has a population in excess of seven million, with only one airport,” Mr. White said. “Most other major cities with this size population have a choice of four or more airports.”

Hong Kong missed an opportunity to avoid this situation 18 years ago, when it could have retained its airport at Kai Tak for business jets. It has since been converted into a cruise ship terminal. As a result, a Hong Kong businessman returning home in his business jet may be denied landing and/or parking at HKIA due to slot restrictions, he said.

To address that problem, Mr. White advocates forming a Pearl River Delta customs and immigration-free zone allowing business jets to land at airports in Hong Kong, Macau, Shenzhen and Zhuhai, and for passengers to commute within the zone by helicopter. “That would instantly resolve the parking and slot limitations for HKIA,” he said.

China has fewer than 300 airports, against more than 5,000 in the United States. Mr. Liao said China is adding 20 airports a year and, even if that number rose, there are no short-term concerns of an airport glut for the world’s most populous country. “Even if they’re building 50 airports a year, in 10 years that’s 500, in 100 years that’s 5,000,” he said. “It’s still a very small number.”

Mr. White emphasized the need for a vision for the development of China’s business aviation industry. “It is inevitable that the Chinese business jet population will eventually grow to a size similar to the U.S.,” he said. “However, without open skies, improved infrastructure and qualified manpower, this is not likely to happen in the near future.”

Mr. Dixon expressed cautious optimism that infrastructure gains may be followed by further liberalization of the operational environment. “Hopefully they will open up more airways and more airspace,” he said. “If you see how far China’s come since the eighties, it’s moved a long way, but we would like to see it move faster.”